Breaking Down the Warehouse Boom in Commercial Real Estate

Following years of very little warehouse construction, the demand for space far exceeds the available supply. The boom in demand for commercial real estate, namely warehouses, is on the rise as Amazon and other online retailers need more space to fulfill their customers’ orders. However, most of the current supply of available space is not suited for the demands of the boom in e-commerce.

A survey by the real estate firm CBRE found that most warehouses in the United States are around 34-years old. Unfortunately, the age of these warehouses and their lack of amenities cannot deliver on the instantaneous fulfillment of a customer’s online order. Simple things such as tight spaces and low ceilings hinder many online retailers’ ability to fulfill orders.

Most of the oldest warehouses are spread out across the East Coast. On the flip side, the West Coast and parts of the South are seeing a rapid rise in new warehouse construction, especially in Phoenix, Las Vegas and Atlanta. However, the most prominent online retailer, Amazon, is snatching up as much warehouse space it can find. Some analysts speculate that Amazon’s appetite for warehouse space may actually be helping the real estate market. In the first half of 2017, sales of industrial real estate hit $23.8 billion, which is more than 20 percent in growth in the overall sector.

Amazon is not the only shark in the water when it comes to having an appetite for warehouse space. Amazon’s chief rival, Wal-Mart, continues to open new distribution centers to fulfill its online orders. With the consumer demand for online shopping continuing to grow, companies like Wal-Mart and other online stores will need warehouse space to remain competitive with retail brick-and-mortar killer Amazon.

According to the Atlanta Federal Reserve, the industrial real estate market is healthy and strong. Current vacancy rates are at all-time lows, and the majority of new warehouse constructions that are more than 500,000 square feet are immediately leased once all construction is complete. Some analysts call the current boom in industrial real estate, namely warehouse space, a “once-in-a-generation” occurrence.

To put things in perspective, most of Amazon’s distribution centers are more than a million square feet. Additionally, Amazon continues to pursue new warehouse construction that can deliver on the latest technology. Since most consumers expect to get what they ordered online almost immediately, the demand for space should remain strong as most online distribution centers hold ten times more inventory than traditional superstores.